Investor's Business Daily, February 29th, 2008
Credit crunch gathering steam
The mortgage crisis and overall credit crunch will likely cut GDP growth by 1.3 percentage points in the next year, according to a study by several top economists at a Univ. of Chicago forum. Banks are expected to tighten credit further as home loan losses swell to $400 bil -- $250 bil more than previously seen. The report urged banks to cut dividends to preserve capital. Presenters included Jan Hatzius of Goldman Sachs, Anil Kashyap of the Chicago Fed and Hyun Song Shin of Princeton Univ.
Boston Fed chief Eric Rosengren and Fed Gov. Frederic Mishkin agreed with the study's basic premise. Rosengren said it may have underestimated the economic impact from possible rises in unemployment and a sharper drop in home prices. He said Fed rate cuts have limited home price declines and unemployment gains. Euro zone sentiment fell in Feb.
The confidence gauge for the 15-nation currency bloc fell 1.6 points to 100.1, said the European Commission. That lifted views that the European Central Bank will cut rates later this year despite high inflation -- and denials from ECB officials.
Italy's economy grew a much weaker-than-expected 1.5% in '07, the gov't said, suggesting that Q4 was especially soft. The budget deficit fell to 1.9% of GDP, the lowest since '00 and below the EU's 3% ceiling for the first time since '02. German retail sales fell 1.3% in Jan. from Dec., dimming hopes that consumers will power Europe's No. 1 economy this year. COMING UP MONDAY
ISM factory index for Feb., 10 a.m. EST (forecast: 49). Construction spending for Jan., 10 a.m. EST (forecast: down 0.8%).
